Deal or no Deal

3 Replies

20 Unit Brick Apartment, Pitched Roof (new x 5 years)
Separate metered utilities (owner pays none)
All electric central air/heat
No Vacancy, waiting list to get in

Debt service: Asking 750,000 Get for 680,000

680,000 at 10% down 7.75% 30year

Year: 2007
Scheduled Gross Income: $125,400
Vacancy: $3,000 (never know)
Effective Gross Income: $122,400
Maintenance: $8,000
Taxes: $2,809
Insurance: $8,000
Management/Grounds/Misc: $18,502
Total Expenses: $37,311
Net Operating Income: $85,099
Debt Service: $53,573
Pre-Tax Cash Flow: $31,526
Monthly Per Unit Cash Flow: $138.20

2 bed 1 bath
No. Units: 19
SF: 777
Avg. Mo. Rent: $550

2 bed 1 bath resident care taker
No. Units: 1
SF: 777
Avg. Mo. Rent: $0

Can add laundry for additional income, rents can go up 10%

What's the consensus? Deal or no deal?

Note: I could be way off on the calculations

With the mortgage calculator found on this site, your monthly payment will be $4384.44, while you will only be pulling in $2625.80, based on the monthly per unit cash flow provided ( Which I think is how much after all the fees you will make??). So you will be ~$2000, a month. From what I have read on this board in order to make money off rentals you need a better deal as rent is lower than what houses cost in most areas. In order to make money on this you would have to significantly pay less for the property. But I may be wrong so I would wait for some one else to chime in.

This looks like a deal to me. You have accounted for all income and expenses and debt service and still have a decent positive cash flow. When you add a coin-operated laundry and 10% rent increase, the deal only looks better. The 0% vacancy rate is unheard of, however, you should account for it to be conservative. Will increasing the rent by 10% effect the vacancy rate? When was the last rent increase?

Cellcounter,

Here is how I see this deal:

Gross Rents: $10,450 per month
Operating Expenses: $5,225
NOI: $5,225

Mortgage: ($680K, 30 yr, 7.75) $4,872/month

Cash flow: $353/month or $17.65 per unit per month - UGH!

Notes: Your expense numbers were off. You missed a BUNCH of the expenses such as: legal expenses, evictions, damage done by tenants (in excess of deposit), advertising, lawsuits, office supplies, utilities during vacancies, capital expenses, etc, etc, etc. I could go on and on. Throughout the United States, operating expenses run 45% to 50% of the gross rents. Do the research and verify this for yourself.

Also, you have listed a 30 yr mortgage, which is normally the term for a residential mortgage. Commercial mortgages usually have shorter terms, like 20 years. With a 20 year term, this is a negative cash flow property!!!

I would not do it at this price.

Mike